Not good, not bad, just neutral

Exodus cuts jobs; Internet Capital Group reports

By

BambiFrancisco

NEW YORK (CBS.MW) -- With little positive news to muster another advance, Net issues took a hit Wednesday, leaving many shares to shed gains accumulated since May began, but keeping April increases intact.

"Not good, not bad, we just have to continue to wait and see," said Greg Geiling, communications equipment analyst at JPMorgan H&Q, whose comment on tech bellwether Cisco Systems
CSCO, +0.57%
sums up the sentiment across the overall beaten-down Internet/tech sector. "We need definitive signs of recovery and we won't get that until early in the third quarter. Until then, stocks will trade in a tight range." Indeed, Cisco Systems fell 6 percent to $19.13, roughly the same amount it gained Tuesday.

The Goldman Sachs Internet Index gave up 3.4 by the close, after gaining ground Tuesday. After a schizophrenic string of trading days, the Net barometer is now trading back down to early May levels. Recall, the Net index ran up 9 percent in the first week of May.

Among the issues falling below May 1 levels include Amazon.com
AMZN, +1.24%
down 7 percent to $15.01, well below the near $17 mark it traded at the start of the month. Yahoo
YHOO
which traded above $20 at the beginning of May, is now at $18.86, down 5 percent by the closing bell.

The good, the bad

Apparently, there is not enough good news to inspire buyers, or bad news to attract short-sellers. Lining up the positive and negative data points results in a "neutral" outlook, just like Geiling's rating on Cisco.

The router king, after Tuesday's close, Cisco posted third-quarter revenue and earnings that exceeded expectations. That's the good news. A few incremental positives that Geiling would list include "signs of stability in certain business lines." In other words, it appears enterprise companies may be buying and volume of orders aren't dropping but just leveling off, he said. Another incremental positive, according to Geiling is that demand may pick up over the next one to two quarters. "The fact that we could potentially see an industry bottom by the end of the year is an incremental positive," he said.

On the negative side, "we're still not seeing widespread growth."

Another negative listed by Thomas Weisel Partners is that "a weakening Europe is now the biggest worry."

Bottom line on Cisco: "Expectations have gotten ahead of themselves and there is nothing incrementally solid enough to give investors something to hang their hats on," said Geiling.

Business and blackouts

Merrill Lynch Internet Holdrs gave up 1.5 percent while Merrill Lynch "B2B" Holdrs, a basket of online exchange specialists, also lost 1.5 percent.

Internet Capital Group
ICGE
whose fortunes rise and fall on the merits of its holding companies, posted a pro forma loss of $185 million in its first quarter. ICG also took a $1.2 billion write-off, driven largely from its stock acquisition of Rightworks when ICG shares traded in the stratosphere. See full story.

ICG also said it continues to reduce its cash burn for its 15 "developed partner" companies, those given special attention among ICG's holdings. Within that mix of companies, Rightworks was taken off after being sold to I2 Technologies
ITWO
while Blackboard, a provider of software targeting the higher-learning market, was added. These 15 key companies had a cash position of $218 million at the end of first quarter, compared to $318 million in the prior quarter. In total, ICG has 65 partner companies, down from 72 in the prior quarter.

While the company is focusing on trimming down, the perpetual challenge still exists. ICG needs to keep its companies alive while corporate spending remains tight and the IPO window remains shut. Only one of the 15 companies is cash-flow positive, according to ICG.

Shares of ICG closed practically unchanged at $3.12. That's up nearly 50 percent in the past week. But they still stand at half their Aug. '99, split-adjusted IPO price of $6.

Exodus
EXDS
fell 7 percent to $9.43. Exodus said it will eliminate about 675 jobs by consolidating some operations and by leaving positions unfilled when employees quit. The reduction will result in a second-quarter charge of almost $10 million, the company said.

The Web hosting company also experienced a temporary power failure. According to company officials, one of its data centers in Sunnyvale, Calif., was knocked out for about one hour due to an "interruption of commercial power supply from Pacific Gas & Electric, resulting from a PG&E underground vault explosion."

The failure brought down Yahoo Messenger for three hours on Monday, according to a Yahoo spokesperson. Yahoo is an Exodus client. See Net Stocks, Tuesday. According to Merrill Lynch analyst Tom Watts, who maintains his "buy" rating, the power outage also disrupted services for an estimated 50 customers.

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